Review Checklist for Final Exam (Comprehensive):

Your Final Exam will consist of 40 MC questions worth a total of 130 points.

The exam breakdown is as follows:

1) Approximately 8-10 of the MC questions will be quantitative covering variance analysis only. 2) Approximately 8-10 of the MC questions will cover high level concepts from the the articles and cases covered during the second half of the semester only. 3) Approximately 10-12 of the MC questions will come from conceptual material covered during the second half of the semester (course notes and supporting readings). 4) Approximately 10-12 of the MC questions will come from conceptual material covered during the first half of the semester (course notes and supporting readings).

Additional exam information: A) No quantitative material, articles or cases will be covered from the first half of the semester. B) The formula sheet attached to this review sheet will be provided on the exam. C) NO Graphing calculators or cell phones will be allowed during the Final Exam. D) Additional Quantitative MC questions have been posted to OnCourse under the Exam Review tab for your practice and exam preparation.

This is a basic list of major topics covered. To succeed on this exam you should at minimum know and understand the following. Make sure to use the discussion questions at the end of each case and reading as a guideline or study tool to identify the critical points of each reading:

CONCEPTUAL FROM FIRST HALF OF SEMESTER: 1) Cost Terms and purposes a. Understand that there are different costs for different purposes. b. Purposes and uses of Management Accounting information What are the objectives of Cost Management/Cost Accounting? c. Who are the primary users of the management accounting information? d. What is the Strategy Triangle and how does cost management play a role? e. How does Management Accounting compare to Financial Accounting? f. What are cost objects? g. Why are costs labeled as Direct/Indirect; Variable/Fixed; Product/Period (what is the business purpose behind each classification h. How is the classification of Variable vs. Fixed Cost (Cost Behavior) tied to managing capacity? i. Why is capacity management such a significant challenge for most companies? j. What role does materiality play in Financial Accounting? In Management Accounting?

2) Management Control Systems a. What are they? Why are there risks associated with NOT having a good management control system? b. Review the list of Tools used in Management Control Systems, make sure you understand each. c. Why does the scale of a firm have an impact on the structure of the management control system? d. What is Responsibility Center accounting? e. What are the challenges of implementing a management control system?

3) Sensitivity Analysis a. What is the difference between Financial Leverage and Operating Leverage and how are they related? b. How might changes in the cost structure affect a companys breakeven point? c. What does margin of safety tell us? d. Explain the significance of focusing on contribution margin to understand a business performance.

4) Variable vs Absorption Costing vs Throughput Costing a. Be able to explain the purpose for each of the three statements. (Each statement has a unique business purpose as well as a unique performance incentive purpose for employees). b. Know which of the statements will result in higher income (lower income) as inventory levels change. How do Variable and Throughput Costing Impact Inventory Management? c. What is the Theory of Constraints? how does Throughput costing assist operations managers in planning under the Theory of Constraints?

5) Cost Allocation and Activity Based Costing a. What are the two primary purposes of Activity Based Costing? b. What are cost pools? What is the significance of having one versus many cost pools? c. What is Normal Costing vs. Actual Costing? d. Know the impact on the Financial Statements if costs are over-/under-allocated. e. What gave rise to the use of Activity Based Costing? f. Be able to explain why ABC is more advantageous to some companies and know the pros and cons. Why would a company use ABC?/Which companies would NOT benefit from the use of ABC, if any? g. Be able to appropriately assign cost drivers to given activities (i.e. What is the cause and effect relationship between the cost and cost driver?). h. How does Activity Based Management relate to Activity Based Costing?

6) Performance Measures and the Balanced Scorecard a. What are some traditional measures used externally to evaluate companies? What are some internal financial measures used to support this external evaluation criteria? b. What are some of the flaws in using ROI for performance measurement? c. Why can the numerator and denominator in ROI take on many different forms internally, explain? d. What is EVA e. Why are financial measures not enough? f. Explain how corporate strategy is linked to the BSC? Specifically how is the BSC developed with corporate strategy in mind? g. What are the four components of the Balanced Scorecard? h. Cite examples within each of the four categories of the Balanced Scorecard i. Explain the following BSC terms: i. Strategy Map ii. Objectives iii. Measures iv. Targets v. Initiatives j. What are some of the cons of using the Scorecard? k. Why is a balanced scorecard necessary for some organizations?

FROM SECOND HALF OF SEMESTER: 7) Budgeting a. How is budgeting part of the management control system? b. How is budgeting driven by the external environment? c. What are the two primary purposes of budgeting? d. Why are budgets necessary for all organizations? e. Know and understand the following budgeting terminology: i. Annual vs. Continuous Budgets ii. Static vs. Flexible Budgets iii. Zero based budgets iv. Kaizen budgeting v. Top down vs. Participatory budgeting vi. Budgeting slack vii. Budgeting gamesmanship viii. Realistic vs. Idealistic Standards ix. Activity Based Budgeting x. Controllable Costs ARTICLE: f. Budgets are Bad for Business Thomas Stewart 1. Why do some argue that budgets are bad for business? 2. Why do managers feel pressure to manipulate budgets. 3. What did budget basher Jean-Marie Descarpentries do that was different than the traditional use of budgets for performance evaluation? CASE: g. What was the budgeting process at Midwest Ice Cream? i. What were the basic steps the company took to formulate a budget? ii. Do you believe that the variances were a fair means of assigning bonuses to the managers? Explain. 8) Variance Analysis. a. Understand Management by Exception b. How is Standard Costing used in budgeting and variance analysis? c. Be able to calculate a flexible budget from a static budget d. Calculate and interpret the Flexible Budget Variance e. Calculate and interpret the Static Budget Variance f. Calculate and interpret the Sales Volume Variance g. Be able to Calculate the Direct Materials and Direct Labor Variances h. Be able to cite specific reasons for DM and DL Variances. i. Know how DM and DL variances can influence each other. j. Be able to Calculate the Variable Overhead Variances k. Calculate Fixed Overhead Variances including the Production Volume Variance l. Be able to explain the Production Volume Variance and know when it is favorable and unfavorable. m. Make sure to have worked through the supplemental multiple choice problems posted on OnCourse.

9) Quality & Six Sigma a. How has the definition of quality evolved over time.? b. What are the costs of conformance vs. costs of non-conformance with regard to quality of products and services? c. What is the Malcolm Baldridge Award and why did it originate? What criteria does the award use to determine quality in an organization. d. What are ISO certifications? Why are they so desirable for companies to have? e. How does the International Standards Organization facilitate quality management? f. How does ISO uniquely define quality? g. What are the four major theories related to quality and how do they differ (refer to course packet reading for more detail)? h. What are COQ reports and how are they used? Why are they limited in what they tell us about our quality management? i. What is Kaizen and how is it used? Why has Kaizen been more difficult to implement in Western businesses than Eastern businesses? j. What is Total Quality Management? k. What is Six Sigma? How does Six Sigma it differ from TQM? l. What does Six Sigma attempt to measure and how do companies know if it is successful? m. Explain how Six Sigma could be applied to multiple areas of an organization, even accounting, human resources or secretarial support. ARTICLE: n. What benefits did Caterpillar see from implementing Six Sigma? o. How did Caterpillar ensure that all areas of the business were informed of Six Sigma? p. What are some of the potential challenges facing Caterpillar in implementation or continuation of it Six Sigma program? CASE: q. What kinds of quality issues did the hospital face that it thought would benefit from Six Sigma? r. Why did the hospital feel that Six Sigma specifically might help its quality issues after other quality programs had failed? s. Why did the hospital face an uphill battle in winning over the physicians? t. What is CAP? u. What does Q+A= E mean?

10) Sustainability a. How is sustainability defined beyond being green? b. What is the triple bottom line? c. Why has sustainability grown in importance what are the external factors driving the growth of sustainability reporting? d. Why are U.S. organizations becoming increasingly motivated to get onboard with sustainability initiatives? e. What specific global/national organizations are driving the sustainability reporting initiative?

f. What is the Dow Jones Sustainability Indices? How do organizations get on the list? How are companies removed from the list? Why are investors particularly interested in these sustainable companies from a financial return perspective? g. What is the GRI? h. What historical initiatives lead up to Sustainability Reporting, beginning in the 70s? i. How are sustainability reporting initiatives and management control systems compatible? j. Do Sustainability initiatives add cost or save cost for companies? What are the arguments for each? k. What are the challenges/obstacles in implementing a Sustainability Report? What are the obstacles in using sustainability reporting for making investment decisions. l. What are the challenges related to ensuring that Sustainability reports are objective and can be audited? m. When might companies decide that issuing a Sustainability Report is not a good idea? ARTICLES: n. In Strategy for Sustainability, how does the author define Sustainability? o. In this same article, why does he say that it is necessary for corporate survival to take on sustainability initiatives? Also, why does he say that these initiatives are easier to address for corporations than for governments? p. How did Johnson & Johnsons sustainability report evolve? What is the companys motivation for Sustainability Reporting? CASE: q. Why did Southwest Airlines decide to create the One Report? r. What were the advantages and disadvantages (risks) for Southwest in creating such a report? s. How might Southwest benefit from being the first in their industry to use sustainability reporting? 11) Earnings Management a. What is Earnings Quality? b. What is Earnings Management? c. Explain the difference between Accrual type Earnings Management and Real Earnings Management. Be able to cite examples of each. d. What are the incentives for managing earnings? e. What are some warning signs that earnings management may be implemented? f. When does Earnings Management become Fraud? g. What are the ethical ramifications of playing the earnings game? h. How do quarterly results affect the earnings game? i. Who is responsible for policing earnings management? j. Be able to explain at a high level some of the SECs reactionary measures to the Enron and WorldCom scandals (i.e. Sarbannes Oxley, Reg PCAOB, Reg FD). CASE: k. What exactly happened at WorldCom? Why were the problems not detected sooner? l. What parties might be considered contributors to the scandal? m. How was the fraud uncovered? n. What were the ultimate consequences of the fraud?

A324 Formula Sheet Final Exam

Static Budget Variance Static Budget - Actual or Sales Volume Variance + Flexible Budget Variance Flexible Budget - Actual or All Price Variances + All Usage (Efficiency)Variances Sales Volume Variance For all Price Variances Flexible Budget Variance - Static Budget Variance AQ (AP-SP) where SP = standard price where AP = actual price where AQ = actual quantity SP(AQ-SQ) where SP = standard price where AQ = actual quantity where SQ = flexible budget quantity SP = Pre-determined Overhead Rate AP = Actual Overhead Rate AQ = Actual Cost Driver for variable OH SQ = Flexible Budget Cost Driver for variable OH Actual Fixed MOH - Budgeted Fixed MOH Budgeted Fixed MOH - (SP x SQ) SP = Pre-determined Overhead Rate SQ = Flexible Budget Cost Driver for fixed OH

Flexible Budget Variance

For all Usage (Efficiency) Variances

For Variable Overhead Variances (using the above formulas)

For Fixed Overhead Variances Spending Variance Production Volume Variance